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TWICE State Of The Industry Report: Retail 2013

4/07/2013 08:00:00 PM Eastern

NEW YORK — If the last four years weren’t bad enough, retailers must now contend with the impact on their customers of higher payroll taxes, delayed income tax refunds and the sequester.

Add to that the ongoing woes over CE devaluation and online competition, and you have a potent brew of retail worry.

Or one would think. While merchants, distributors and retail analysts acknowledge the tough road ahead, many are seeing light at the end of the tunnel — and some are downright exuberant — over a slowly recovering economy, improving jobs numbers, a fresh batch of product innovation, more disciplined pricing, growing majap demand, and, most of all, a resurging housing and home-remodeling market.

Indeed, housing remains the lynchpin of the CE and white-goods industries, driving what Nationwide Marketing Group executive VP Dave Bilas expects will be an increase of as much as 3.5 percent in consumer durables this year.

Retailers are also responding to dramatic shifts in customer shopping habits with a better-integrated, more robust multichannel experience that makes physical stores an asset rather than an albatross.

These points and more emerged from a canvas of recent TWICE interviews and roundtables and public statements and presentations culled for this special state-of- the-industry retail report. Where many had found the glass half empty, most now find it half full.

“We would like to see some more iconic devices come out, the must-haves for the consumer that we’ve been lacking for a while. Some of those are on the roadmap. That said, I think it’s going to be a good year. The future looks good. Our stand-alone Mobile stores have been very successful and our dot-com site is now successful. We are learning a lot about what the consumer wants to shop for, and we look forward to a big year.” — Scott Anderson, merchandising VP, Best Buy

“What is top on our customers’ minds? Our proximity to our base of about 140 million customers coming into our stores every week, and the polling and Walmart mom groups we manage, give us a pretty good window into what folks are thinking.

“Now more than ever they’re telling us that they rely on us for that everyday low-price promise, particularly as things get a little bit uncertain. The customer continues to be pressured by jobs, jobs, jobs, jobs — unemployment and security. They tell us this is top on their minds.

“They also started to mention the payroll tax increase — they notice that 2 percent [difference] in their paychecks, and they’re also very sensitive to that rapid run up in gas prices.

“Most of them say they’re adapting to it and are figuring out how to work their way through that. Maybe there’s a lesson there for those in certain parts of the government. If our customers can figure it out, well, maybe there’s hope.” — Bill Simon, president/CEO, Walmart U.S. (at last month’s Raymond James Institutional Investors Conference in Orlando, Fla.)

“The industry has turned a corner. Flat has been the new up, and now up is going to be the new up. Housing starts are rising — yeah! — and we’ve seen growth in new memberships. There was an energy level on the floor [at last month’s Nationwide PrimeTime! show] that was palpable. And there’s more money out there. We have the LG Ultra HD display on backorder. That’s a $17,000 TV, so suddenly a $5,000 audio system is not out of the question.” — Jeannette Howe, executive director, Specialty Electronics Nationwide (SEN)

“As more people gain confidence in the housing market, that should help drive the business overall — not only in the high end but in all parts of the business. When people move they get new stuff, and that will help all of us. Certainly, customers are going to win this year. Manufacturers are coming out with great new products, retailers are going to invent and find better ways to meet customers’ needs, and everybody is always connected. Information is out there about what the best products are and how they are being sold, and customers are going to win with more information.” — Ben Hartman, CE VP, Amazon.com

“This year retailer success is going to come from a series of base hits. There are no home runs, and those that can get tuned in to the base hits will probably do well in retail and manufacturing. Unfortunately, I still feel that we are in some point of consolidation as a business.

“Also, just about every retailer is looking at other categories to try to stem losses, whether it’s fitness equipment, mattresses, appliances or whatever. But if you bring in more categories, you run the risk of losing a certain amount of focus and capability.

“I would think the industry would step back and say, whoa, we have an issue here, because there are a lot of retailers who are looking to make their fortune on anything but consumer electronics. The trend doesn’t speak well for the industry.” — David Workman, president/CEO, ProSource; president/COO, Progressive Retailers Organization (PRO Group)

“What the channel mix will look like over the next five years depends in part on what the government’s decisions will be about taxing online sales. At this point, it gives online sellers at minimum a 5 percent to 7 percent clear-cut edge, not to mention additional overhead cost savings.

“If everyone at some point were to again be on the same plane, then I believe you will see brick-and-mortar regain some strength, specifically on newer high-tech, higher-cost products, although it will never be back to what it was. Now that the online convenience has been established, there will continue to be a large segment of purchasers who prefer to shop from their computer or phone, understanding that the degree of service needed will be minimal.” — Dennis Holzer, executive director, PowerHouse Alliance

“Brick-and-mortar retailers are here to stay. Ninety percent of all retail purchases are still made in physical stores and shopping is a hobby for the millennial generation.

“I’m not sure [physical and digital] are competing channels, especially if a retailer has the ability to compete in all of them. That is a solution. To be a multichannel retailer … retailers need to engage consumers on all levels. They must think about multichannel … and what is the digital experience. Eighty percent of the U.S. population is on the Internet today, and consumers want their information now, in a digital format. Salespeople have to be able to check specs, inventory and features on a tablet.” — Bob Lawrence, CEO, BrandSource

“The first quarter will be slow, due in part to the fiscal gridlock and the impact of higher payroll taxes, but we expect the balance of the year to be better, starting in March, with consumer durables up between 2.5 percent and 3.5 percent for all of 2013.

“It’s a great time for the independent. We’re gaining share as some of the big-box chains are faltering. We feel very strongly that there will always be a brick-and-mortar presence, but stores will also need an Internet presence, either transactional or informational.” — Dave Bilas, executive VP, Nationwide Marketing Group

“Retail continues to show its importance to the economy, although our consumer research consistently shows a cautious shopper that is making tough spending decisions based upon economic uncertainties, lower paychecks and higher prices for things such as gas. This is particularly true among those making $50,000 or less a year. While retail sales numbers indicate good momentum for the economy, consumers with less earning power may continue to face ongoing pressure, and retail sales will encounter further challenges as sequestration took full effect in March.” — Matthew Shay, president/CEO, National Retail Federation (NRF)

“We are optimistic about this year. There will be pockets of opportunity. I think it is all about being connected. There are a lot of new products, whether it’s Windows 8 or other innovations. It will still be a challenging marketplace, but those that are nimble and act on the pockets of opportunity will be successful in the end.” — Dan Schwab, co-president, D&H Distributing

“The retail landscape is fundamentally shifting. In our case, observers have mistakenly concluded that our issues were primarily related to under investing in our stores. If it were just about store investment, then Best Buy would be thriving after the demise of Circuit City, Barnes & Noble would be thriving after the demise of Borders and other retailers who made significant store investments would be thriving instead of struggling to chart a new course.

In reality, the progression of the Internet and mobile technology is fundamentally reshaping many industries, with retail being one of the largest. Increased price transparency, better customer-level information and analytics, faster supply chains and the advent of social networking and social media are all contributing to making running a large retail organization more complex.

Changes at the CEO or president level of Safeway, Toys“R”Us, Staples, JCPenney, Best Buy and others are signs that the talent needed to transform companies in the retail industry today, and the persistence required to see transformations through, are not easy to come by. Additional skills are required to adapt to the speed, creativity, analytics and experiences that customers require in their shopping as new competitors emerge to excite and educate them, and to disrupt the status quo. As this process plays out, I would expect to see significant levels of management turnover as companies try new ideas and new types of capabilities and organizational structures.— Edward Lampert, chairman/CEO, Sears Holdings (in a Feb. 28 open letter to shareholders, employees and customers)

“There is nothing coming out of Washington or elsewhere to suggest that there will be any recovery this year or any sort of bounce. I think it will be a tough year.” — Daniel Pidgeon, chairman, Starpower Home Entertainment Systems

“I think this year will be tough. There’s a lot of uncertainty in the economy right now, and the consumer is under a lot of pressure, except maybe at the very high end. I don’t think there is a silver bullet, but I am hopeful for Ultra High Definition in a big category like TVs to help us start to move up.” — Joe Hartsig, VP/general merchandising manager, technology and entertainment, office division, Sam’s Club

“Consumer confidence is rebounding, and I feel more momentum in 2013 than I have in many years. I don’t feel the headwinds. We were up 23 percent year to date in week seven and our January orders were up 20 percent. We still have a long way to go, but there’s been a resurgence in two- and three-piece packages, and I’m really excited to see multiple appliance purchases. We went from a replacement business, where 80 percent of purchases were duress sales, to now, where if someone if buying a range, they’ll also consider buying an over-the-range microwave.” — Jeff Knock, senior appliances VP, Nationwide Marketing Group

“We need to create bundles and bring new opportunities to retailers to give them a chance to tell a story that’s more about the product than just the price. There are still a lot of opportunities for retailers, but customers have decided who they want to buy from and what they like, and having a solid brick-to-click strategy is becoming an important trend that retailers cannot ignore.” — Fred Towns, president, New Age Electronics and Jack of All Games (Synnex)

“In the electronics arena, it’s proving to be more difficult to get people into the physical store without promotions and superior customer service, so those elements are key. As more people transition to mobile shopping, it will be incumbent upon the retailers and resellers to find ways to add in-store value that can compete favorably against the convenience of ordering from a personal mobile device.” — Jeff Davis, sales senior VP, D&H Distributing

“We are modestly optimistic for a slight improvement based on what we think will be improved store traffic, as customers come in to see new devices. It’s all about what we can do with the conversion rate in the store.” — Mark Shaw, electronics division merchandising manager, Nebraska Furniture Mart

“One lesson this economic recession has taught us is that technology has become indispensable to consumers and their lifestyles today. While price points have been on the decline and electronics are converging, unit volume in key categories such as tablets, PCs and mobile devices continues to fuel growth in the consumer electronics industry.

“In addition to personal devices, the outlook for major appliances also looks healthy. The National Association of Realtors is forecasting a 9 percent increase in the sale of existing homes for 2013, and a national credit card company’s recent forecast noted that 17 percent of Americans plan to purchase a major appliance this year.

“In our experience, the consumer demand for service contracts tells a similar story. We have seen solid attachment rates trending consistent, if not on a slight incline, against our historical data.” — Tony Nader, president/CEO, NEW Customer Service Companies

“Business is up and most of the weaker players have been purged. It’s still not a rose garden out there, but single-family home construction is up 20 percent and the number of million-dollar or higher homes is up 37 percent, and a $1 million home generates $60,000 in consumer durables.” — Robert Weisner, CEO, Nationwide Marketing Group

“We view February’s retail sales data, which is a continuation of the healthy trend in January, as an early indication that the consumer sector may be a little stronger than expected. We still expect little macro help in 2013 (aside from housing); however, in light of February’s better-than- expected employment data, it appears job growth and modest increases in earnings are translating into a resilient consumer.

“Consumer electronics showed year-over-year improvement in February but slight moderation in two-year trend, still at very depressed levels. Year-over-year sales for CE were positive in February. We are encouraged by the trend — it marks the third consecutive positive month — but given that the category is still at very depressed levels, we are cautious on trends for Q1.” — Gary Balter, hardlines retail analyst, Credit Suisse (in a March 13 research note)

“We think that e-tail and m-commerce sales will continue to evolve rapidly as more and more retail businesses implement strategies and processes to respond to the demands of their customers who prefer to shop online and/ or via their mobile devices.

“In particular, more brick-and-mortar stores have a great opportunity to position themselves to provide a more technologically rich experience for consumers. Stores that incorporate in-store technologies and tools, such as interactive displays and mobile point-of-sale systems will be better prepared to serve the technology-savvy customer base of the future.” — Bill Stewart, president/CEO, Petra Industries

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